There's certainly no shortage of discounted stocks right now. Although the S&P 500 mustered a 1.5% gain last month, a bunch of tickers went south ... way south.
Before plowing into any of these names simply because it's cheaper now than it was a month ago, however, there are some things to consider. Chief among the questions you should be asking is whether any of these names are worth owning at any price.
Here's a closer look at the three worst-performing S&P 500 stocks during the month of April.
What went wrong
Technically speaking, failed bank First Republic is the S&P 500's biggest loser from last month. Because JPMorgan Chase will soon be taking over First Republic, though, the stock's 75% tumble isn't a potential opportunity for investors. First Republic will soon be going away, folded into JPMorgan itself.
But the others? Shares of contract pharmaceutical manufacturer Catalent (CTLT -0.14%), solar power tech company Enphase Energy (ENPH -5.56%), and electric vehicle maker Tesla (TSLA 12.06%) tumbled 24%, 22%, and 21%, respectively, in April. They may be worth a look following the carnage.
The bulk of Catalent's setback stems from its mid-April warning. The organization says "productivity issues and higher-than-expected costs experienced at three of its facilities, including two of its largest manufacturing facilities, during the quarter will materially and adversely impact the Company's financial results for the third fiscal quarter and its outlook for the remainder of the 2023 fiscal year."
Enphase Energy's sell-off is also earnings related, although it's more about the future than the past. Its first-quarter revenue improved by 64% year over year, driving comparable earnings growth. But the company cautions that changes in California's regulation of so-called "net metering" as well as economic malaise are crimping demand. Enphase now expects a top line of somewhere between $700 million and $750 million for the quarter currently underway, versus analysts' consensus expectations of $773 million.
As for Tesla, there is no single specific catalyst for April's weakness; the stock simply drifted lower the entire month. There's little doubt as to the underlying worry, however. Lowered sticker prices meant to make its cars more competitive with rival's EVs are chipping away at net profit margins ... a worry that was confirmed when the company released its fiscal Q1 results in mid-April.
But might there be an upside to stepping into these stocks while they're down? As always, it depends.
Time to go bargain hunting?
It's tricky. Investors are encouraged to buy good stocks when they go on sale. Just because a stock goes on sale, however, doesn't necessarily make the underlying company a good investment. In these three particular cases, the matter is made more confusing by the fact that -- despite troubling headlines about their future results -- these organizations are clearly going to last.
Still, an investor's picks should be based solely on a particular company's plausible future, and that underlying stock's risk-versus-reward proposition. This approach actually makes bargain hunting easier rather than harder, by clearly separating winners from less worthy names.
That's certainly the case with the three prospects in question here. Considering each one in a proverbial vacuum (without worrying about the economy's transient condition) makes one of them a buy, another best left avoided, and the third one a wait-and-see kind of prospect.
Tesla is the name to avoid ... at least until further notice. While CEO Elon Musk makes a valid point about winning market share now even at the expense of profitability, the timeline for this strategy remains unclear. Indeed, the implied strategy for monetizing its electric vehicles after their sale also remains unclear. Never mind the fact that the market's simply grown accustomed to Tesla's healthy profit margins, which are going to be unhealthy for the foreseeable future. Uncertainty never helps buoy a stock's price.
The one to put on your wait-and-see watchlist is Catalent. While "productivity issues" can always be addressed and "higher-than-expected costs" are usually temporary, it's concerning that a contract drugmaker of this ilk is running into technical trouble at any of its facilities, let alone two of its biggest sites. There may be a bigger oversight issue in play that could prove more complicated to fix.
The only name that's an immediate buy, therefore, is Enphase.
Yes, the second quarter (and perhaps the remainder of the year) won't be quite as thrilling as previously anticipated. Take a step back and look at the bigger picture, though. While logistical headwinds are blowing in California at the same time that the industry itself is bumping into supply chain trouble, the shift toward solar-produced power is big enough to push past these short-term headaches. Solar advocacy group SolarPower Europe said it believes that early 2022 worldwide solar power production will double by 2025. The Solar Energy Industries Association's forecast specifically for the United States is even bolder, predicting a tripling of the U.S.'s solar power production capacity between now and 2027.
Such growth, of course, will foster incredible demand for Enphase Energy's technology, which helps consumers and institutions make the most of their solar panel systems. So even with a disappointing Q2, analysts believe Enphase's top line will grow to the tune of 33% this year.
The extra work is worth it
These sorts of deeper looks at companies' unique situations take a little time, to be sure, whereas jumping into a familiar ticker just because it's down is fast and easy. It doesn't take an enormous amount of time to become familiar with company-specific matters, though, and this effort really pays off in the end ... even if it simply prevents you from stepping into the wrong trade at the wrong time.
